Health Is Wealth: 2021 Prospects for Luxury Multifamily
In the last installment of our 2021 outlook series, we take a look at the luxury multifamily market. Three experts provide their insights and talk about their expectations for the sector.
By now, it’s clear that every facet of the real estate industry has been affected by the health crisis. In the multifamily industry, the biggest impacts were felt by upscale properties. Rents for luxury lifestyle assets—particularly for those located in gateway markets—were the first to drop when the pandemic hit. In other parts of the country, landlords started to make concessions to avoid vacancies, while the Sun Belt area seems to have been less affected.
Many renters living in expensive metros or in core areas of large cities decided to eschew urban apartments for life in smaller cities or in the suburbs. And with their interest pivoting to less dense living environments and healthier buildings, landlords and operators had to quickly adapt.
READ ALSO: What to Expect From Senior Housing in 2021
Not long ago, lifestyle renters used to be attracted by common-area amenities such as game rooms, swimming pools, spas and golf clubs. Nowadays, they prefer more private, socially distanced features, with a focus on health, wellness and cleanliness. “We have previously looked at our amenity spaces with a focus on community and gathering spots for neighbors and now we are having to balance that with the need for separation and privacy,” Geoffrey Woodrum, vice president of design at StreetLights Residential, told Multi-Housing News.
Multifamily assets need to find the best ways to adapt to remain competitive, “which is where luxury may have a distinct advantage,” according to One and Only Holdings Founder & CEO Edward Mermelstein. Cain International’s Vice President Justin Oates agrees that unique projects that promote health and cleanliness will continue to outperform.
Lasting through the pandemic
Going through a world crisis unlike any other can put a lot of pressure on industry professionals as they need to find the best strategies for their businesses to push through this difficult period. Mermelstein noted that negotiating with lenders and tenants is now part of his daily routine. “It’s quite difficult to adjust—not knowing what comes tomorrow,” he said.
However, real estate is a long-term business and most players remain confident that best-in-class assets in gateway markets will soon regain their allure. Even in the midst of the pandemic, Cain International saw continued interest for its One Beverly Hills project in Los Angeles—a $2 billion, mixed-use development that is set to include two residential buildings, a luxury hotel and condominiums, as well as restaurant and retail space.
The multifamily market in Miami has also been very competitive since the start of the pandemic, with domestic migration toward South Florida only accelerating in the past 10 months. Foreign buyers were able to view developments through virtual tours, while young professionals working remotely have also been choosing this sunny area.
“These strong positive trends for both domestic and foreign buyers seem likely to remain intact as numerous global financial firms, technology companies and others have announced plans to establish a significant presence in Miami,” Oates said.
Mermelstein believes that New York City is also reinventing itself as “a tech hub and a leader in safe office and residential living,” following a rough period at the beginning of the health crisis.
What to expect
Although rental and sales prices have both been affected by the pandemic, the luxury multifamily sector will most likely recover in the second quarter, as unemployment slowly rebounds and people return to a somewhat normal life. “Once the market absorbs the current inventory of new luxury units, we will start seeing an upward pressure on rental as well as sales prices,” Mermelstein expects.
Going forward, it’s crucial to create dynamic spaces that can function differently for individual needs. Coworking spaces, private meeting rooms and flexible areas will be among the most used and sought-after areas in an apartment, according to Woodrum. In the longer term, buildings that promote health and wellness are expected to outperform other upscale products. These crucial demand drivers are set to become mandatory in any luxury listing in the next few years.